Currency Outlook: Dollar and Treasury yields remain weak

The US dollar index continued its fall for the second consecutive week. As expected, the index fell to test the key support level of 101.50 last week. It made a low of 101.43 and has bounced slightly from there to close at 101.70. The index was down 0.83 per cent for the week. The US 10Yr Treasury yield, on the other hand, remained lower but was relatively stable.

The US Personal Consumption Expenditure (PCE), the Federal Reserve’s inflation gauge, data was released on Friday. The PCE came in at 3.2 per cent (year-on-year) in November, down from 3.4 per cent in October. This could strengthen the case for the central bank’s rate cut projections next year. As such, the dollar index and the Treasury yields are likely to remain under pressure, going forward. Also, there is no major data release from the US this week. So, the current negative sentiment can continue to weigh on the greenback and yields.

Dollar outlook

The support at 101.5 on the dollar index (101.70) is holding well for now. But the bias remains negative. Strong resistance can be around 103. We can expect the dollar index to break 101.50 decisively and fall to 100.50-100 in the coming weeks. To ease the downside pressure, the dollar index must get a sustained rise past 103. That looks less likely now.

Bearish

The US 10Yr Treasury yield (3.89 per cent) remained lower, but stable below 4 per cent. Support is at 3.78 per cent. Resistance is in the 4-4.05 per cent region. Outlook is bearish to break below 3.78 per cent. Such a break can drag the US 10Yr Treasury yield down to 3.6-3.5 per cent in the coming weeks.

Resistance ahead

The euro (EURUSD: 1.1014) has risen well and closed just above 1.10. Immediate support can be at 1.10. Below that 1.0930-1.09 will be the next strong support. Euro can rise to 1.11-1.12. But the price action thereafter will need a close watch. The 1.11-1.12 is a crucial resistance zone. Failure to breach this resistance zone can trigger a corrective fall.

Rupee watch

83.00-83.30 (narrow) or 82.90-83.50 (broad) will continue to be the trading range for the rupee for some more time

Back into the range

The Indian Rupee (USDINR: 83.15) has fallen back into the 83.00-83.30 range. The domestic currency touched a high of 82.91 initially last week, but failed to sustain higher.

On the chart, 83.30 is a crucial support for the rupee now. A break below it can take the rupee down to 83.45-83.50 again. On the other hand, if the rupee manages to sustain above 83.30, it can rise to test 83 again. A break above 83 can take the domestic currency up to 82.95-82.90 again.

A decisive rise above 82.90 might be needed for the rupee to gain bullish momentum. Only in that case, the chances of the rupee strengthening towards 82.70-82.50 will come into the picture.

For now, 83.00-83.30 (narrow) or 82.90-83.50 (broad) can be the trading range for the Indian rupee.

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